"agreement" that tended to diminish the FDIC's interest in the loan and because this agreement failed to meet the four requirements of § 1823(e). See id. at 96.
The Langley court recognized that § 1823(e) promotes two major policies. First, this statute allows "federal and state bank examiners to rely on a bank's records in evaluating the worth of the bank's assets." Id. at 91. "Neither the FDIC nor state banking authorities would be able to make reliable evaluations if bank records contained seemingly unqualified notes that are in fact subject to undisclosed conditions." Id. at 91-92. Second, the Court recognized that § 1823(e)'s four requirements "ensure mature consideration of unusual loan transactions by senior bank officials, and prevent fraudulent insertion of new terms, with the collusion of bank employees, when a bank appears headed for failure." Id. at 92.
2. Defenses Asserted in the Instant Case
With these limitations in clear view, this Court now analyzes each of defendants' defenses in turn.
a. Payment in Full
Defendants argue that both the March 1, 1990 note and the March 8, 1990 note were paid in full, although defendants call this defense by a variety of names. Although "that which we call a rose, by any other name would smell as sweet," William Shakespeare, Romeo and Juliet act 2, sc. 2, defendants will not enjoy the sweet smell of success by raising these defenses because each is without merit.
Defendants contend that the FDIC cannot collect on the notes because the notes were paid in full. Defendants assert that Betancourt's August 4, 1989 check for $ 842,857.56 created a credit that "would more than cover the amount outstanding on the two notes amounting to $ 450,000."
(Defendants' Brief at 12.)
This defense lacks merit because defendants are alleging exactly the type of unwritten side agreement that the D'Oench, Duhme doctrine and § 1823(e) prohibit. Defendants contend that they reached an agreement with Capital in 1989 whereby Capital would apply surplus funds from Betancourt's August 4, 1989 check against future loan obligations. Yet, defendants concede that both of the promissory notes issued in March, 1990 are not marked "cancelled" and that Capital's records do not indicate that these notes have been paid in full. Further, defendants make no allegation that Capital entered into any written agreement. 12 U.S.C. § 1823(e) requires any agreement that diminishes or defeats the FDIC's interest in a promissory note to be in writing. In addition, under the D'Oench Duhme doctrine, defendants are estopped from asserting as a defense any agreement that is likely to mislead federal banking authorities. Accordingly, in the absence of any written agreement that indicates that Capital agreed to apply the proceeds of the 1989 check against defendants' March, 1990 notes, defendants' payment-in-full defense fails as a matter of law.
Defendants contend that Betancourt holds a cancelled check and that this check is sufficient evidence to satisfy the requirements of D'Oench, Duhme and § 1823(e). (Defendants' Brief at 12.) This argument is meritless. A check that fails to specify what obligations it is intended to satisfy is not an agreement in writing. Further, defendants present no evidence that Capital's board of directors or loan committee approved any agreement under which the proceeds from the August 4, 1989 check would be used to satisfy future loan obligations, and therefore they failed to fulfill the third requirement of 12 U.S.C. § 1823(e).
In addition, defendants' argument contradicts the policy underlying the common law and statutory protections of the FDIC. In Langley, the Supreme Court noted that "one purpose of § 1823(e) is to allow federal and state bank examiners to rely on a bank's records in evaluating the worth of a bank's assets." Langley, 484 U.S. at 91. The Court emphasized that "when the FDIC is deciding whether to liquidate a failed bank . . . or to provide financing for purchase of its assets," it is vital that the FDIC be able to rely on bank records because the FDIC may need to evaluate a bank's worth "'with great speed, usually overnight, in order to preserve the going concern value of the failed bank and avoid an interruption of banking services.'" Id. (quoting Gunter v. Hutcheson, 674 F.2d 862, 865 (11th Cir.), cert. denied, 459 U.S. 826, 74 L. Ed. 2d 63, 103 S. Ct. 60, reh'g denied, 459 U.S. 1059, 74 L. Ed. 2d 624, 103 S. Ct. 477 (1982)).
Defendants argue that if the FDIC had examined Capital's records carefully, it would have noticed Betancourt's August 4, 1989 check for $ 842,857.56. Further, despite the fact that Betancourt's check does not state what obligations it was intended to satisfy, defendants assert that the FDIC should have realized that this check was intended to satisfy the March, 1990 notes. In addition, defendants argue that the FDIC should have been able to determine from bank records that a 1989 check was intended to satisfy debts that did not exist in 1989. Defendants contend that the FDIC should have been able to deduce that Betancourt's 1989 check was meant to satisfy debts that would only come into existence in the following year. If this were the case, before the FDIC could accurately evaluate a bank's worth, the FDIC would need to sift through all of the bank's records, all of its account statements, and every check drawn against every account at the bank. Clearly, such a requirement would contradict a policy designed to enable the FDIC to evaluate a bank's worth "'with great speed, usually overnight.'" Id. (quoting Gunder v. Hutcheson, 674 F.2d at 865).
Capital's records indicated that Betancourt and Renewal had signed promissory notes and that these notes had not been paid in full. The FDIC was entitled to rely on these records when it evaluated Capital's value. Defendants have failed to allege the existence of any written agreement, and the cancelled check for $ 842,857.56 does not, in itself, constitute such an agreement. Thus, defendants' payment-in-full defense is meritless.
Defendants again raise the payment-in-full defense by asserting that the D'Oench Duhme doctrine and § 1823(e) only protect "assets" acquired by the FDIC and that the $ 300,000 note and the $ 150,000 note are not "assets" because they were paid in full at the time the FDIC acquired Capital. This argument is nothing more than the payment-in-full defense phrased differently. Therefore, this defense lacks merit.
The payment-in-full defense next appears under the moniker "accounting." (Defendants' Brief at 11.) As discussed above, Betancourt contends that he wrote a check to Capital for $ 842,857.56 in August 1989, Capital cashed this check, and Capital never credited this money against defendants' loan obligations. Further, defendants argue that "if the FDIC is a transferee of notes and is also the Receiver of Capital National Bank then it has also retained liability on contingent claims asserted by Defendants against the Plaintiff." (Defendants' Brief at 11.) Defendants demand an accounting so that the money from the 1989 check can be credited against defendants' current obligations to the FDIC, including the March, 1990 notes. Defendants argue that because plaintiff has provided no such accounting, plaintiff is not entitled to summary judgment. (Defendants' Brief at 12.)
Insofar as defendants accounting defense seeks affirmative relief, this Court lacks subject matter jurisdiction. When the FDIC acts as a receiver for a bank, the bank's creditors must file a claim with the FDIC before they can seek redress in federal court. A creditor who has not filed a claim cannot bring suit in federal court because the court lacks subject matter jurisdiction. 12 U.S.C. § 1821(d)(13)(D) states:
Except as otherwise provided in this subsection, no court shall have jurisdiction over --
(i) any claim or action for payment from, or any action seeking a determination of rights with respect to, the assets of any depository institution for which the [FDIC] has been appointed receiver[.]
See also FDIC v. Shain, Schaffer & Rafanello, 944 F.2d 129, 132 (3d Cir. 1991) (stating that the "claims procedure in section 1821(d) is exclusive. Congress expressly withdrew jurisdiction from all courts over any claim to a failed bank's assets that are made outside the procedure set forth in section 1821") (citations omitted); Capital Data Corp. v. Capital Nat'l Bank, 778 F. Supp. 669 (S.D.N.Y. 1991) (stating that § 1821(d)(13)(D) "expressly limits the jurisdiction of the district courts to claims that have first been presented to the receiver").
In the instant case, it is clear that the accounting that defendants request is a determination of their rights with respect to assets of Capital, which is a "depository institution for which the [FDIC] has been appointed receiver," 12 U.S.C. § 1821(d)(13)(D). Yet, defendants present no evidence to indicate that they filed a claim with the FDIC, and they make no assertion that they filed such a claim. Moreover, in a separate action, defendants sued the FDIC to recover the proceeds of Betancourt's $ 842,857.56 check, and Judge Sand rejected the claim on the ground that defendants had never filed a claim with the FDIC. See Betancourt v. FDIC, 851 F. Supp. 126, 128 (S.D.N.Y. 1994) ("None of the plaintiffs ever filed a claim with the FDIC."). Because defendants have failed to exhaust their administrative remedies, this court lacks jurisdiction to determine whether the FDIC owes any money to defendants.
Even if this Court had jurisdiction, however, defendants cite no authority in support of the proposition that "accounting" constitutes a valid defense against the FDIC in an action for payment of a promissory note. Further, this Court is unaware of any authority that supports defendants' argument. While defendants may have demonstrated that they demanded, and never received, an accounting, defendants cite no authority that demonstrates that they are entitled to an accounting or that plaintiff's failure to provide an accounting justifies denying summary judgment in this case.
Moreover, the mere fact that the FDIC may be liable for funds that Capital owed to Betancourt does not mandate an accounting. If Capital owed money to Betancourt at the time that the FDIC was appointed to act as Capital's receiver, Betancourt could have sought to recover these funds by filing a claim with the FDIC. Indeed, while this motion was pending, Betancourt sued the FDIC to recover the proceeds of Betancourt's $ 842,857.56 check. See Betancourt, 851 F. Supp. 126.
Like the mythical Hydra, the payment-in-full defense rears its head in defendants' brief yet again. This time, defendants argue that their liabilities to Capital should be offset against the proceeds from Betancourt's $ 842,857.56 check, which Capital failed to credit against his loan obligations. This defense lacks merit for many of the same reasons that defendants' other payment-in-full defenses fail. First, as discussed above, this court lacks jurisdiction to offset defendants' liabilities against monies that the FDIC allegedly owes to defendants because defendants have failed to file a claim with the FDIC and thus have failed to exhaust their administrative remedies.
Second, the mere fact that the FDIC may have assumed liabilities that Capital owed to Betancourt does not mandate that those liabilities be used to satisfy obligations that Betancourt owes to the FDIC. Just as the FDIC is free to sue Betancourt on the notes executed in Capital's favor, Betancourt is free to seek payment from the FDIC for liabilities that the FDIC acquired from Capital. As noted above, Betancourt sought such payment when he brought a separate action against the FDIC.
In sum, each of defendants' variations on their payment-in-full argument is without merit.
b. Good Faith
In a particularly vague section of defendants' brief, defendants appear to raise a good-faith defense. (Defendants' Brief at 15-16.) Defendants cite authority that they contend "indicate[s] that D'oench [sic] might not apply to where the borrowers are wholely innocent of any misconduct." (Defendants' Brief at 15.) Yet, Defendants fail to explain how this proposition applies to the instant case, and they fail to offer any evidence to show that Renewal or Betancourt were "wholely innocent of any misconduct."
However, this Court need not attempt to decipher defendants' cryptic argument or search the record for evidence of defendants' good faith because § 1823(e) and the D'Oench Duhme doctrine preclude a defendant who has entered into an agreement that limits the FDIC's rights from raising good faith as a defense. See Baumann v. Savers Fed. Sav. & Loan Ass'n, 934 F.2d 1506, 1516 (11th Cir. 1991) ("lack of bad faith, recklessness, or even negligence is not a defense in D'Oench cases"), cert. denied, 118 L. Ed. 2d 543, 112 S. Ct. 1936 (1992); Timberland Design, Inc. v. First Serv. Bank for Sav., 932 F.2d 46, 49 (1st Cir. 1991) ("the D'Oench doctrine applies where the only element of fault on the part of the borrower was his or her failure to reduce the agreement to writing") (footnote omitted); FSLIC v. Gordy, 928 F.2d 1558, 1566-67 (11th Cir. 1991); Bell & Murphy & Assocs., Inc. v. Interfirst Bank Gateway, 894 F.2d 750, 754 (5th Cir.), cert. denied, 498 U.S. 895 (1990); Federal Land Bank of Jackson v. Shaffett, 757 F. Supp. 22, 24 (M.D. La. 1991). Therefore, defendants' good-faith defense is without merit.
As the next line of defense, defendants argue that the March 1, 1990 note was obtained by fraud in the factum.
Because defendants have failed to produce any evidence that would support their claim of fraud in the factum, this defense is meritless.
The law recognizes two types of fraud: fraud in the inducement and fraud in the factum. A person commits fraud in the inducement when he uses misrepresentations of fact to induce a party to enter an agreement. In Langley, the Supreme Court ruled that a defendant can only assert fraud in the inducement as a defense if the fraudulent statements comply with § 1823(e)'s four requirements. See Langley, 484 U.S. at 93. In the instant case, defendants have not raised fraud in the inducement as a defense.
Instead, defendants raise the defense of fraud in the factum. Fraud in the factum is "the sort of fraud that procures a party's signature to an instrument without knowledge of its true nature or contents." Langley, 484 U.S. at 93. In Langley, the Supreme Court suggested that fraud in the factum may take an agreement outside the scope of § 1823(e) and the D'Oench Duhme doctrine. See id. at 93-94; see also FDIC v. Giammettei, 34 F.3d 51, 1994 WL 461841, at *6 (2nd Cir. 1994) ("the Supreme Court suggested that a defense of fraud in the factum . . . would not be subject to the requirements of 12 U.S.C. § 1823(e)").
This Court need not decide whether fraud in the factum takes an agreement outside of the scope of D'Oench, Duhme and § 1823(e), however, because defendants have failed to present evidence that creates a material issue of fact as to whether Betancourt was a victim of fraud in the factum. To defeat summary judgment, defendants must demonstrate that there is a question of fact as to whether Capital procured Betancourt's signature on the March 1, 1990 note without Betancourt knowing the note's "true nature or contents." Langley, 484 U.S. at 93. In other words, defendants must produce evidence that indicates that Betancourt did not understand that he was signing a promissory note.
Betancourt's deposition testimony clearly establishes, however, that he realized that he was signing a promissory note and that he knew what a promissory note was:
Q: Did you read the notes you signed?